It looks like the end of an era for the US dollar.
In his new book “Our dollar, your problem: an invite’s view of seven turbulent dedede of global finance, and the road ahead”, Kenneth Rogoff returns to the dominant race for currency in world trade and central bank reserves for a multitude of other countries. Today, he argues, that high status is on the decline.
“My thesis is that the US dollar is about to be overturned a few ankles,” said Rogoff, professor of economics and president of Maurits C. Boas in international economics. “It will always be the first in global finance, because nothing is about to replace it completely. The dollar will simply not be as unique as it was in the past. ”
Written entirely before the 2024 elections, the book weaves first -person reflections with a history of the American economy and its currency exceeding a succession of challengers. As a pro teen at chess at the end of the 1960s and the early 1970s, Rogoff went to tournaments in the Eastern Bloc provided him with a rare overview of American communist rivals. As a researcher invited to the Bank of Japan in 1991, he saw a booming economy on the precipice of the disaster. He was then chief economist at the International Monetary Fund in the early 00 years, the emerging days of the common currency of Europe.
“The book is not a brief,” said Rogoff. “But I link anecdotes from my experiences with world leaders, decision -makers, former students and chess players.”
The Gazette met Rogoff in her office for an overview of the personal tales of the book and the macroeconomic prophecy. The maintenance was published for length and clarity.
Kenneth Rogoff economy teacher.
Photo by Martha Stewart
This press release seems extraordinarily, of course, given the recent sale of US treasury bills and the decline of the dollar after President Trump’s price announced. What events have forced you to revisit the incredible increase in the dollar and to offer predictions for its future?
It was not a single event. Based on my research, I thought the dollar culminated in its global footprint in 2015 and was smooth. But I also thought that this trend could accelerate. I was particularly concerned about our budget deficit and the increase in interest rates. I recently published an article showing that if you look at the long history of interest rates, they tend to return to the trend.
I was also very concerned about the loss of independence of the federal reserve. In fact, I wrote the first article on the importance of the Central Bank independence almost 45 years ago; It may be my most famous article. But in recent years, I have started to notice rhetoric on the left and right on reintegration. Another crisis would need. During the war, for example, central banks are commonly subject to government.
This covers some of the internal pressures on the domination of the dollar. What about external factors?
We were able to use economic sanctions instead of military intervention. It saves us from lives; This allows us to save money. But the domination of the dollar also gives us access to financial data that no other country has. If you had to go to the CIA today, you would see someone on a laptop instead of someone like James Bond.
There is therefore a whole appetite, especially in Asia, to reduce the grip of the dollar. China could not help noticing when the United States has placed economic sanctions against Russia following its large-scale invasion of Ukraine. China, of course, has designs in Taiwan.
For most of us in the United States, the all-powerful position of our motto is not exactly in the lead. Can you illustrate how the domination of the dollar affects daily life for everyday Americans?
On the one hand, we all pay lower interest rates. It is not a huge amount. You don’t like to pay 6% on your mortgage, but you wouldn’t like it even more if you pay 7%. And for the national government, which owes 36 billions of dollars, each additional 1% represents $ 360 billion.
Another thing is that, in times of crisis such as the pandemic or the global financial crisis of 2008, the United States was able to borrow in a promise manner. Interest rates increase as our debt increases, but the effect is very soft compared to the United Kingdom or France. If this privilege is lost, we will notice it.
Tell me about the title of the book.
The US dollar was as good as gold. If you were a foreign country holding the equivalent of what is hundreds of billions of dollars today, as do many Asian central banks, you can simply take them to the United States, and we would give you gold. But President Richard Nixon decided, in 1971, that we were not going to do it anymore.
Managers around the world were in shock. As a global financial incident, it was just as dramatic as the introduction of President Trump’s prices earlier this year. Nixon sent the Treasury Secretary John Connally to meet these leaders in Rome. They asked, “What are we doing? Now that you are not in gold, you can simply inflate these things, and we are stuck with it.” And Connally replied: “Well, it’s our dollar, but it’s your problem.”
What are Connally’s words remind you today?
Connally’s remark captures the arrogance of American leaders that foreign leaders feel so often. I think our role in the world is with responsibility, and we must recognize it.
The title of the book is also ironic. After leaving gold, we lost a kind of price anchor. Nixon began to beat the president of the Federal Reserve Arthur Burns as brutally as Trump beats Powell today. It was simply not in public; He did it in the oval office. We only know it now because of the Watergate cassettes. Burns was pressure to print a lot of money. The result was the worst inflation that the United States had seen for a long time. So, although Connaly said “it’s your problem”, the resulting inflation has also proven to be a disaster for the United States.
Other savings have become challengers of the American power over the years. But you open the book with a surprising example, at least for those who reached age after the Cold War. You start with the rise of the post-second world war of the Soviet Union. Can you talk about this choice?
In the 1980s, it became clear that the Russian ruble would not exceed the dollar. But in the 60s and 70s, we had no idea. I write on the various teachers that I met as the first cycle in Yale, as well as manuals of main economists such as Paul Samuelson. Samuelson was convinced that the Soviet economy would catch up with the United States, the greatest economic historian of that time was Angus Maddison. He did not think that the Soviet Union would catch up, but he thought it would be pretty good. These economists were not Marxists!
Later, we did not know that Japan would hesitate. We did not know that Europe would sparkle. We have never imagined the heights that the US dollar finally reached. My book strikes these themes over and over.
How did your experiences as a chess master for adolescents of globe-hopping shape your point of view on the subject?
My Yale teachers explained how great the Soviet Union was. But I had lived alone abroad, mainly in the old Yugoslavia. I had visited some of my chess friends in their homes. Failures were a big problem in the communist block, so these players had a privileged life and more beautiful dwellings than the typical resident. But these beautiful dwellings consisted of small blocks of cement in these buildings without humor. They barely had a modern plumbing according to American standards. It made me very skeptical about the claim of Samuelson.
You write in this book that the era of domination of the dollar is in “late average age, but still in good health”. Is it always true in the light of the Trump’s second term of the second term?
Well, the dollar is starting to encounter more serious health problems under Trump. When you are academic, the goal is to never write a book that is true tomorrow. After coming to Harvard in 1999, I went for a walk in the campus with the former Faculty of Arts and Sciences Dean Jeremy Knowles. I will never forget what he told me. He said: “Perfect paper is the one that everyone thinks is false, but in five or 10 years, it is proven.”
You have made it in the past.
Carmen Reinhart and I were ridiculed at the beginning of 2009 when we presented an article showing that the recovery of financial crises tend to be much slower and lower than conventional recovery. Of course, that’s exactly what happened. I had a similar experience in 2020 when my work suggested a deep problem in Chinese real estate.
My new book also contains certain devotee forecasts which, I believe, will ultimately prove to be correct – on interest rates, inflation and the role of the dollar. I do not maintain that the domination of the dollar will fall suddenly tomorrow. But Trump was an accelerator. It was a catalyst. Some parts of the world were already moving away from the dollar. Now they move much faster.
